All Free Accounting MCQs with Answers

• A. Capital
• B. Absorbed capital
• C. Net assets
• D. Net working capital

Explanation: Net working capital measures the short-term financial cushion available for operations.

• A. Decrease net income
• B. Decrease liabilities
• C. Increase net income
• D. Increase liabilities

Explanation: An increased provision for bad debts is recognized as an expense, reducing reported profit or net income.

• A. Liabilities
• B. Cash
• C. Bank
• D. Capital

Explanation: Depreciation is an expense that reduces profit, and the resulting lower profit reduces the owner's capital or equity.

• A. Cash flow statement
• B. Income statement
• C. Statement of changes in equity
• D. Statement of financial position

Explanation: The statement of financial position presents assets, liabilities and equity at a specific date, making the accounting equation visible in…

• A. Expenses are greater than Income
• B. Expenses are less than Income
• C. Expenses=Income
• D. Liabilities are greater than income

Explanation: A net loss results when total expenses exceed total income for the accounting period.

• A. Identifying transactions
• B. Preparing "T Accounts"
• C. Preparing financial statements
• D. Preparing trial balances

Explanation: Financial statements are the main output of the accounting cycle and communicate financial information to users, making their preparation…

• A. They are mainly prepared for external users of financial information
• B. They are more complex and hard to prepare
• C. The are the summary of accounting data
• D. The are prepared on basis of actual concept Accounting & Auditing

Explanation: Financial statements are designed mainly for external users such as investors, creditors and government agencies, whereas management…

• A. Creditor of the business
• B. Government agency
• C. Shareholder of the business
• D. Manager of the business

Explanation: A manager is an internal user because the manager works within the business and uses financial information for planning, control and…

• A. Manager of the business
• B. CEO of the business
• C. Creditor of the business
• D. Controller of the business

Explanation: A creditor is external to the business and uses financial statements to assess repayment ability and credit risk.

• A. Identification of economic event
• B. Communication of financial information
• C. Recording financial information
• D. Making decisions about business

Explanation: Financial statements are prepared to communicate summarized financial information to users, so their preparation belongs to the…

• A. Government agencies
• B. investors
• C. Creditors
• D. Managers

Explanation: Managers are internal users who use accounting information for operational and strategic decisions.

• A. Equity
• B. Sale return
• C. Inventory
• D. Purchases

Explanation: Unsold goods held for resale are closing inventory, also called stock. They are reported as a current asset and reduce the cost of goods…

• A. Debit electricity expense and credit accrued electricity
• B. Debit accrued electricity and credit electricity expense
• C. Debit electricity expense and credit bank
• D. Debit bank and credit accrued electricity

Explanation: An accrued expense has been incurred in the current period but remains unpaid.

• A. Expense Rs 6,000 and prepayment Rs 18,000
• B. Expense Rs 18,000 and prepayment Rs 6,000
• C. Expense Rs 24,000 and prepayment nil
• D. Expense Rs 2,000 and prepayment Rs 22,000

Explanation: Three months, October through December, belong to the current year. Therefore, Rs 6,000 is charged as expense, and the remaining Rs 18,000…

• A. It increases profit and decreases liabilities
• B. It decreases profit and increases liabilities
• C. It increases assets and increases profit
• D. It decreases liabilities and increases cash

Explanation: The accrued expense is charged to the current period, reducing profit. Because it is unpaid, it also creates or increases a liability…

• A. Debit insurance expense and credit prepaid insurance
• B. Debit prepaid insurance and credit insurance expense
• C. Debit cash and credit insurance expense
• D. Debit insurance expense and credit cash

Explanation: The unexpired portion provides a future benefit, so it is an asset rather than a current expense.

• A. A provision is an estimated liability, while a reserve is an appropriation of profit
• B. A provision is an asset, while a reserve is an expense payable
• C. A provision is paid in cash, while a reserve is always unpaid
• D. A provision records revenue, while a reserve records depreciation

Explanation: A provision is recognized for a present obligation whose amount or timing is uncertain.

• A. A possible obligation exists with no reliable estimate
• B. A present obligation exists, outflow is probable, and amount is reliably estimated
• C. Management plans a future expense and cash is available
• D. A past event occurred but no obligation currently exists

Explanation: Recognition requires a present obligation from a past event, a probable outflow of resources, and a reliable estimate of the amount.

• A. Debit accrued income and credit income
• B. Debit income and credit accrued income
• C. Debit cash and credit accrued income
• D. Debit accrued expense and credit income

Explanation: Accrued income is a receivable because the business has earned the amount but has not collected it.

• A. Rs 10,000
• B. Rs 30,000
• C. Rs 90,000
• D. Rs 120,000

Explanation: The business uses the rented property for three months during the year.